What Catalonia Risks By Leaving Spain

Oct 03, 2017

Newly Independent Nation Would Lack European Union Membership

Smith Brain Trust – Economics was a major driver in Catalonia's independence referendum. The more-affluent region of Spain has long complained it pours more money into Madrid than ever flows back from the capital.

However, in the wake of the referendum, which voters overwhelmingly approved over the weekend, an expert from the University of Maryland's Robert H. Smith School of Business is warning that for Catalonia, going it alone isn't likely to be easier.

That's because without Spain, Catalonia loses one of the things that makes the region economically viable, says Kislaya Prasad, research professor in the Smith School's Decisions, Operations and Information Technologies department. It loses its membership in the European Union.

And that could prove ruinous for the exports-driven Catalonia. The region, which includes Barcelona, sells chemicals, auto parts, food and other goods to markets across Europe. Having status as an EU country means that trade is simple and, importantly, free. An independent Catalonia would have to apply for EU membership, embarking on an application process that can span several years.

European Commission President Jean-Claude Juncker has said there would be no favoritism, no fast-tracking the process for Catalonia or any other region that declares independence from an EU state.

"There is no grandfathering in," says Prasad, who is also the executive director of the Smith School's Center for International Business Education and Research. "They would basically begin this long process of applying for EU citizenship and being granted membership into the EU."

And that membership is granted only by way of the unanimous vote of the existing EU member countries. Getting Spain to vote yes is likely to be tricky.

"If the parting with Spain is very, very bitter, then Spain itself would be able to hold up its membership," Prasad says. "That would not be good for the Catalonian economy."

More than 2.2 million Catalonian voters cast ballots in favor of declaring independence from Spain, in an election that was marred by clashes between pro-separatist voters and Spanish police that left more than 700 people injured.

Prasad says the "heavy-handedness" of the Spanish police over the weekend clearly signals that Prime Minister Mariano Rajoy has little interest in compromise.

EU leaders have generally been reluctant to lend support to independence movements, fearing a contagion effect that could spread to Scotland, Flanders, Northern Italy and elsewhere, Prasad says. However, they nonetheless expressed deep concern about the violence in Spain.

"Such violence," Prasad says, "has the potential of backfiring in Spain as well, and alienating partners in the governing coalition in Madrid."

Catalonian leaders say 90 percent of the votes were cast in favor independence. But turnout was low, at just 42 percent, according to reports. Spanish courts and the central government in Madrid had declared the referendum illegal; anti-separatists boycotted the vote.

For Catalonia, the road to independence isn't likely to be smoothly paved, nor short. "Europe matters more to both Spain and Catalonia than Spain and Catalonia matter to Europe," says Prasad.

Trade relations with Europe is essential, but so to is entry to the EU. And that will require Catalonia to build all new institutions of government from the ground up and maintain a healthy balance sheet, even despite the hefty Spanish debt it's likely to inherit. "It will be messy," Prasad says. "It would be messy in the best of circumstances."



About the Expert(s)

Kislaya Prasad

Dr. Prasad is a Research Professor at the Robert H. Smith School of Business, University of Maryland. He received his Ph.D. in Economics and M.S. in Computer Science from Syracuse University. Previous positions include Professor of Economics at Florida State University and Research Officer at the University of Cambridge. His principal research focus is on the computability and complexity of individual decisions and economic equilibrium, innovation and diffusion of technology, and social influences on economic behavior.

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